Values-based investing

You can choose investments that are consistent with your personal beliefs.

As you invest to meet your financial goals, you may also want to choose investments that reflect your personal values or are designed to generate positive social, environmental, or economic change at the local, national, or international level.

There are a number of ways to invest that combine doing what you believe is a right or responsible and realizing a positive return. You might:

Identify individual securities whose issuers run their businesses in ways that you respect, including B Corporations that have been established to create a social, environmental, or community-based benefit as the result of their business operations.

Seek impact investment opportunities through private equity funds that seek to generate a responsible, sustainable impact through projects in which they invest.

Buy shares in a mutual fund or exchange traded fund (ETF) that has established criteria that investments must meet to be eligible for inclusion in the fund, or ask about a managed account with an environmental, social, or corporate governance (ESG) focus.

Choosing ESG funds

You can also participate in sustainable responsible investing by choosing mutual funds, ETFs, or managed accounts that build their portfolios with stocks or bonds whose issuers meet the specific ESG criteria laid out in their prospectus.

Mutual funds, for example, typically construct a series of filters that they use to screen out companies that make certain types of products or follow certain policies. The index an ETF tracks may similarly have been constructed by eliminating certain companies from a larger market index or by selecting firms that meet the standards established by the index methodology, such as sustainability.

There is substantial choice among values-based funds and ETFs, so it’s not difficult to select investments that you know you’ll be comfortable with. In addition, the challenging task of choosing the underlying investments has been done for you. And investment return, which in many cases equals or surpasses the return on non-ESG funds, is reported on a regular basis and can be evaluated against recognized benchmarks.

Measuring performance

Since the problems that impact investments address are huge and many of the programs are relatively new, it can be difficult to measure financial return, which may range from a below-market rate to one that’s the equivalent of or even surpasses what you realize on more conventional investments.

The Global Impact Investing Network (GIIN), a nonprofit organization focused on impact investing, is working, in collaboration with a number of partners, to provide greater clarity in both areas. Preliminary findings, using a benchmark launched in 2015, show that market rates of return are possible, and that nearly all of the returns in the report were positive. You can find more information at www.thegiin.org.

Making impact investments

Impact investors are committed to solving or mitigating social and environmental problems, ranging from climate change to illiteracy and non-sustainable agricultural practices to inadequate healthcare, while realizing a long-term return. An impact investment may be focused on developing sources of renewable energy, funding innovative financing for small businesses, or backing entrepreneurs collaborating with community organizations to develop sustainable resource management or clean technology. Or the resources may be directed at a host of other needs including inclusive financial services, microfinance, and health and wellness.

Most impact investments, which tend to require substantial capital, are private debt investments. However, funds of funds that aggregate capital from a number of investors to meet minimum investment requirements and a number of retail funds from well-known companies make it possible for more people to participate.

You’ll want to be cautious, however, when considering some well-publicized programs that make impact investing easily accessible. Be sure to check all such opportunities carefully to be sure they meet your ethical and financial standards, and consult your adviser before investing.

Finding responsible companies

As you look for companies in which to make a values-based investment, you may want to differentiate between the financially solid companies that are acceptable to you and those that are not.

A traditional approach is to screen out, or eliminate from consideration, those companies whose products or corporate policies are unacceptable to you or conflict with your personal values. A contrasting approach is to concentrate on successful companies whose products and policies are, at the very least, acceptable and may be seen as a benefit to society. Some investors put technology firms, firms that take public positions on social and environmental issues, and certain service providers in this category.

A third approach is to seek out companies, such a B Corporations, that actively work to make the world, or at least some part of it, a better place, environmentally, socially, or by some other measure. For example, a company might set up a facility in an economically marginal community to provide local jobs, produce fair trade products, or offer legal services to renewable energy start-ups.

The B Corporation business model is focused on what’s known as a double bottom line. In other words, success is based on both financial profits and achieving a stated objective. B Corporations may apply for voluntary certification from a nonprofit called B Lab, which assesses social and environmental performance, accountability, and transparency – things that may be difficult for an individual investor to determine. You can find a list of certified B Corps, plus additional information, at www.bcorporation.net.